By Xin Zhiming (China Daily)
Updated: 2008-03-14 09:55

Annual industrial output growth slowed to 15.4 percent in the first two months from 17.4 percent in December, the slowest since December 2006, the National Bureau of Statistics said yesterday.

Industrial output has been mainly driven by sectors including equipment and non-metal mining products, which grew by around 20 percent in the January-February period, the statistics bureau said. Of the major products, only cement production fell, by 2.8 percent.

The slower pace in the first two months is mainly due to snowstorms that disrupted transport and have temporarily stopped production in some places since late January, and a drop in export demand, analysts said. Chinese companies rushed to export goods before year-end to cater to an overseas sales boom and to avoid the impact of a domestic tax policy change that's set to dampen exports.

Given the Chinese New Year holiday, which shuts down many factories for two weeks, and distorted production figures due to the severe weather, industrial output growth in January and February remains "solid", Sumei Tang, an economist at Moody's Economy.com, said.

The stable growth shows the country's outbound shipment orders remain firm and domestic demand is still strong, she said.

Tang said the country's robust investment in recent months is expected to continue to shore up industrial production in the coming months. Meanwhile, the upcoming Olympic Games and rising wages may help boost domestic demand and stimulate industrial output this year.

But anticipation of a deepening US economic crisis and possible domestic interest rate hikes to curb inflation, which hit an 11-year high of 8.7 percent in February, could hurt business activity and dampen consumer confidence, resulting in less consumption and ultimately leading to softer industrial production growth this year, Tang said.

Goldman Sachs economists Song Yu and Liang Hong also said industrial production growth is likely to slow further this year.

"With heightened inflation risks, we expect further tightening measures by the government, coupled with a gradual softening in exports, will likely lead to downward pressure on industrial activities in the coming quarters."